COMMUNITY SERVICES BLOCK GRANTAUDITS March 1,

Risk: Increased Funding Levels 2 HHS $2B Health Centers HHS $2B Child Care & Development DOE $5B Weatherization HUD $1B Community Development HHS $1B Community Services HHS $2B Head Start Early Head Start CAAs

Risk: CSBG Legislation  Alert issued to Assistant Secretary for Children and Families requesting legislative change  Weatherization – an agency identified as in-crisis and/or vulnerable can be disqualified from receiving Recovery Act funding  CSBG – a state cannot withhold, terminate and/or reduce the funding of an eligible entity without going through the corrective action process defined in section 678C of the CSBG Act and CSBG Information Memorandum 109  October 30, 2009: 20 community action agencies classified as in crisis or vulnerable scheduled to receive $44.9 million in Recovery Act funds  State 1: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization  State 2: Two at risk agencies funded under CSBG, reduced or withheld funding under weatherization  State 3: State IG not willing to fund at risk agency under CSBG 3

Goals 4  To identify high risk states and determine whether they established adequate internal controls for assessing and monitoring CAAs  To identify high risk community action agencies within these states and assess:  financial viability  capacity to manage and account for Federal funds  capability of operating an HHS program in accordance with Federal regulations

State Risk Factors 5  ACF State ranking (April 2009)  Past problems  Distance, monitoring efforts, number of CAAs  Demographics (poverty)  Client population (total served to number of CAAs)  Timeliness – late submission of CSBG state plans  Increase in funding  Amount unspent by states

State Risk Factors 6  ACF risk assessment (IM-112)  Material weaknesses  Financial and operating controls  Policies and procedures  Compliance monitoring  Timeliness – late submission of risk assessment  Number of high risk CAAs to total CAAs

Focus at State Level  Assess controls for ensuring CAAs:  minimize risk of local agencies having to spend Recovery Act funds within short time frames, including the use of the IM 112 risk assessments  ensure Recovery Act funds are only used for services provided by September 30, 2010  ensure Recovery Act funds are only used to pay for eligible services by December 29, 2010  ensure Recovery Act funds not used by local agencies are immediately returned to Federal government  identify the number of local agencies the State has reviewed during the most current 3- year review cycle  determine how many local agencies identified as at risk received Recovery Act funds under CSGB but not under Weatherization 7

State Oversight 8

 No or undocumented site visits  No assurance full onsite reviews were completed within the required 3-year period 100% not completed for 3 states 9% not completed for an additional state  Site visits were not adequately documented, limiting ability to determine whether they had actually been conducted for a fifth state 9

State Oversight  Incomplete or inaccurate risk assessments  4 of 13 CAAs receiving $4.3M did not report unresolved audit findings from annual audit reports for one state  13 of 40 CAAs receiving $5.7M did not report material weaknesses, reportable conditions or questioned costs for a second state 10

State Oversight  Reporting errors  Inadequate data reported on Recovery.gov First state Expenditures overstated by $645,700 Estimated jobs overstated by 124 FTEs for 5 CAAs tested Second state Expenditures overstated by $114,000 $2M in CCDBG reported as CSBG funds 11

State Oversight  Poor controls over funds  No procedures to recover unspent funds by CCAs  Funds disbursed to 2 CAAs without expense reports  Insufficiently tracked expenditures — $2.7M per accounting records, $2.5M per grant management records  Monitoring did not begin until March

State Oversight  Inadequate program controls  State relied on self-certifications to verify eligibility requirements related to the Federal poverty level 13

Community Action Agencies  Selected and audited 3 community action agencies for each State using a risk-based approach  Unfiled risk assessments required by IM 112  Unspent CSBG funds provided by State  Financial statement analysis (trend and ratio analysis)  Received CSBG funds but not weatherization funds  Forgiven debt, line-of-credit drawdowns 14

Controls at Community Action Agencies 15

Controls at Community Action Agencies  Safeguarding Federal funds  8 CAAs maintained Federal funds in excess of amount protected by FDIC Balance exceeded $12M for one CAA Balance exceeded $3.8M for a second CAA Balance exceeded $2M for a third CAA Balance exceeded $770,000 for a fourth CAA 16

Controls at Community Action Agencies  Safeguarding Federal funds  Account balances on audited financial statements did not tie to accounting records  Allocation of salaries based on budgets  Large balances of unspent Recovery Act funds with a limited number of months left in funding period  $35,200 in undeposited funds 17

Controls at Community Action Agencies  Reporting errors  Jobs overstated by 59 FTEs OMB requirements for reporting job estimates not followed  CAA did not maintain adequate documentation to support data reported to ROMA information that was reported was submitted 4 to 9 days after the due dates  Expenditures overstated by $38,500 in Recovery.gov 18

Controls at Community Action Agencies  Insufficient, unimplemented or incorrectly applied policies and procedures  Lack of subrecipient monitoring procedures  No procedures for the use of consultants  Did not properly account for equipment  Did not conduct physical equipment inventories  Did not conduct timely physical inventories  Inappropriate allocations 100% of time charged when 28% of time spent on ARRA 100% to time charged when 100% of time spent fund raising 19

Controls at Community Action Agencies  Board of Director deficiencies  Board does not fully participate in developing, planning, implementing and evaluating the CSBG program—abdicated responsibilities to Executive Director  Employees used rubber stamps of Board members’ signatures to sign checks 20

Controls at Community Action Agencies  Program deficiencies  Did not always ensure that incomes of individuals receiving CSBG benefits under the Recovery Act were below 200% of the Federal poverty level 21

Controls at Community Action Agencies  Inadequate records  $38,500 reported in quarterly financial support could not be supported by accounting records  Could not assess financial viability because audited financial statements for 3-years were not available  Unable to provide inventory records  Independent auditor identified 27 incorrect adjusting journal entries due to misclassifications, double recording, improperly recorded transactions 22

Controls at Community Action Agencies  Inappropriate use of fund  $12,270 in unapproved office furniture  $10,540 paid to subrecipients, no services provided  $41,500 paid to subcontractors, no services provided  $18,440 claimed using estimates instead of actual costs  $72,200 used for unapproved incentive awards  $58,500 in unsupported subgrantee wages 23

Controls at Community Action Agencies  Financial viability  0.36 current ratio, working capital decreased by over $7M over 2-year period  Debt ratio > 1.0 over 3-years, negative cash balances for 2-years  Declining current ratio over 3-year period (1.0 to.78), negative working capital and net losses for all 3 years  Negative working capital of ($4.9M) and ($1.2M) 24

Controls at Community Action Agencies  Poor segregation of duties  Program directors and managers performed own physical inventories and maintained own inventory records—inventory valued at $1.4M  Banking and approval of expenditure responsibilities assigned to same individual 25

Next Steps 26  Multi-state audit to determine whether community action agencies have appropriately used Federal funds, including Recovery Act funds  Identified 27 high risk community action agencies to audit  Audits in various stages of completion

Questions? 27